A Straightforward Guide to Contractor Bonds: What They Cover and How Much They Cost

Key Takeaways

  • A contractor's bond isn't one price model, since license bonds carry a flat annual premium while performance and payment bonds price off the total contract value.
  • License bond amounts vary significantly by state and even by city or county, so it pays to confirm requirements in every jurisdiction where you work.
  • Performance and payment bonds typically cost 1% to 3% of the contract value for well-qualified contractors, climbing to 3% to 5% for those with credit or financial challenges.
  • Payment bonds are rarely priced on their own, since sureties usually issue them alongside a performance bond under one combined premium.
  • Contractors who can't qualify through standard underwriting can turn to the SBA's Surety Bond Guarantee Program, which backed a record $10.6 billion in guarantees in fiscal year 2025.

You just won a bid, and now the project owner wants a performance bond, the payment bond has to follow right behind it, and the state licensing board is asking for a separate bond just to keep your license active. Nobody mentioned any of this during the estimate, and each bond type comes with its own price tag and its own logic. Untangling that now saves a lot of guesswork on your next bid.

What Types of Contractor Bonds Are There?

The three main types are license bonds, performance bonds, and payment bonds, each guaranteeing a different obligation.

A license bond protects the public and the licensing authority, guaranteeing you'll follow the rules tied to your license. A performance bond guarantees you'll finish a specific project as agreed, while a payment bond guarantees your subcontractors and suppliers get paid. 

How Much Does a Contractor’s Bond Cost?

License bonds typically cost 1% to 5% of the bond amount. Performance and payment bonds run 1% to 3% of the contract value.

The short answer hides a longer one, because a contractor bond isn't priced the same way twice. A license bond works off a flat, government-set bond amount, while a performance or payment bond scales with your actual contract value instead, so a $50,000 remodel and a $2 million public job land in completely different cost brackets.

What the Three Main Contractor Bonds Cover and Cost

License bonds, performance bonds, and payment bonds all guarantee something different, and each one prices out differently too. A license bond runs off a flat, government-set amount, while performance and payment bonds scale with the value of the contract itself. 

Find out more about what each one covers and what actually drives the cost.

Contractor License Bonds: What They Cover and What They Cost

A contractor license bond isn't insurance for you. It protects the public and the licensing authority by guaranteeing you'll follow the building codes and regulations tied to your license.

  • What it guarantees: If a licensed contractor cuts corners or violates regulations, the bond gives the state or municipality a way to recover money on behalf of anyone harmed.
  • How it's priced: Sureties charge a flat annual premium based on the required bond amount, typically 1% to 5%, with well-qualified applicants often paying close to a $100 minimum no matter how small the bond.
  • Why amounts vary: Bond amounts swing more than most contractors expect, even inside a single state. For example, Tennessee requires a $10,000 bond for its home improvement contractor's license in nine specific counties, including Davidson and Shelby, while Memphis and Shelby County separately require $25,000 for their local construction code bond.

General contractor bond cost boils down to a fixed percentage of a bond amount your state or city sets. Because of that, check both your state and your local jurisdiction before assuming one number applies everywhere.

Performance Bonds: What They Cover and What They Cost

A performance bond guarantees you'll finish the project according to the contract, on time and to spec. If you default, the surety steps in to cover completion costs, either by financing a replacement contractor or paying the project owner directly up to the bond amount.

Pricing works differently here than it does for a license bond. A construction surety bond like this one is priced off the total contract value, typically 1% to 3% for contractors with solid credit and financials, and closer to 3% to 5% for those without either.

Federal projects add a layer of complexity. The Miller Act requires a performance bond on contracts over $150,000, a threshold set by federal acquisition rules rather than the older $100,000 figure still floating around online. 

Larger contracts also tend to unlock tiered rate structures that push the effective percentage down as contract value increases.

Payment Bonds: What They Cover and What They Cost

A payment bond protects the subcontractors, laborers, and material suppliers on your project, guaranteeing they get paid even if the money stops flowing between you and the project owner. On federal jobs, this matters even more, since nobody can file a lien against government property.

Payment bonds rarely get priced on their own. Sureties usually issue them alongside the performance bond as a single combined package, sharing one underwriting file and one premium instead of two separate charges. If you're quoted a performance bond, the payment bond cost is most likely already baked in.

What Affects Your Contractor Bond Cost

Four variables move the number more than anything else:

  • Credit score: Personal credit is often the first thing an underwriter checks, and it can shift a quote from a flat 1% to a flat 5% overnight.
  • Bond or contract amount: License bond premiums scale with the required bond amount, while performance and payment premiums scale with the contract price.
  • State and municipality: Required bond amounts and rules vary by jurisdiction, sometimes down to the city or county level.
  • Type of work: Surety companies file different base rates by trade, so a roofing contractor and a general building contractor won't necessarily start at the same rate.

If your credit or financials keep you from qualifying at standard rates, the U.S. Small Business Administration's Surety Bond Guarantee Program exists to help. It backed a record $10.6 billion in guarantees in fiscal year 2025, supporting over 2,200 small businesses that couldn't get bonded through standard channels, often through an SBA-guaranteed bond program layered on top of a standard surety application.

A Quick Example: Two Bonds, Two Pricing Models

Say you're a general contractor licensed in Tennessee, and you've just landed a $250,000 renovation contract for a local school district.

If you're operating under Tennessee's Home Improvement license in one of the nine counties that require it, like Davidson or Shelby, your license bond is a flat $10,000 requirement. At a well-qualified rate of 1%, that's a $100 annual premium, the same amount whether this job is worth $50,000 or $2 million, because the Tennessee license bond has nothing to do with the contract price 

The performance bond on that same $250,000 contract works on a different model entirely. At a straightforward 2% rate for a solidly qualified contractor, the premium comes to $5,000, calculated off the contract value rather than any fixed bond amount. A payment bond issued alongside it typically keeps the combined premium close to that same number rather than doubling it.

Get Your Contractor Bonds Started With ProSure Group

Figuring out which bond applies and what it should cost shouldn't fall on you alone during bids. The ProSure Group works exclusively in surety and fidelity bonding, with access to more than 30 A.M. Best-rated carriers across all 50 states.

For more information, please review our wide range of surety bond offerings. For next steps, start your bond application or call (800) 480-3883 to talk with a surety specialist.